Juniper takes a hit on cloud, slides ahead with service providers
Despite an increase in supply chain costs due to COVID-19, Juniper Networks' net revenues reached $1.1 billion last quarter, a slight uptick year-over-year for an increase of 5% sequentially. CFO Ken Miller says the company is experiencing year-over-year growth for the first time this year.
Juniper's struggling service provider business turned a corner, growing 5% year-over-year. This slight increase is a notable improvement over Q3 2019 when service provider revenues fell 17% year-over-year to $452.5 million.
"Similar to Q2, we continue to benefit from the strength from our US cable customers, as well as the Tier 2 and Tier 3 carriers in international markets," said CEO Rami Rahim. "We also saw solid demand for our switching products in addition to our routing solutions. While we did see some weakening in our SD-Security business, we believe this was a function of timing and would note that the pipeline here remains strong."
Despite current growth in the service provider business, Juniper predicts the service provider segment will experience a mid-digit decline overall in 2020.
The routing segment for Juniper also increased 6% in Q3 due to diversification efforts as Juniper introduced software-centric testing and automation capabilities from its Netrounds acquisition that the company believes will continue to help it grow in this area of the routing market, explains Rahim.
In addition, Rahim is optimistic for growth in Juniper's 400G segment. "We continue to expand our 400G product set," says Rahim. "We expect the 400G opportunity to begin in earnest next year with revenue to become material in the second half of next year."
However, Juniper's cloud business, which experienced consistent growth in 2019 into early 2020, dipped 7% year-over-year. Miller expects sequential growth in the enterprise and cloud segments in Q4, but a slight decline in the service provider business.
Overall, Juniper predicts the cloud business growth will be flat or slightly up for 2020 as a whole, but return to growth in 2021. Miller also predicts Juniper will begin reaping the rewards of the company's $450 million acquisition of 128 Technology in 2021.
"Assuming the pending acquisition of 128 Technology closes, we expect nearly a point of additional revenue growth, which we expect to be weighted to the second half of 2021," says Miller.
During the earnings call yesterday, one analyst addressed the elephant in the room on what has caused Juniper's cloud market decline considering the COVID-19 pandemic is an ideal setup for growth in the cloud market.
"The cloud is entirely dependent on the deployments of large hyperscale cloud providers," responded Rahim. "Cloud has always been a highly lumpy type of vertical because of the concentrated nature of the customer base and CAPEX expenditures within that customer base. I remain optimistic about cloud as a vertical we focus on long term. We're doing everything we can but the rest is up to our customers and their deployment patterns."
Rahim is also optimistic about momentum in Juniper's strategy to help enterprises build "self-driving," more automated networks and reported 180% growth in orders of its Mist AI service year-over-year. Juniper acquired Mist Systems for $405 million last March, and Rahim says the "acquisition of 128 Technology represents the next step in our AI-driven strategy." (See Podcast: Juniper CTO on creating an AI-driven enterprise.)
Juniper's stock price closed at $21.85, a decrease of 15% from $25.75 in Q3 2019. Miller says a quarterly dividend of $0.20 per share will be paid in Q4.
— Kelsey Kusterer Ziser, Senior Editor, Light Reading